Through its very name, a portfolio loan makes its function clear. Lenders who make this type of loan will keep it in their portfolio, and do not sell it. This is so they can earn the full loan interest. Some trends show that portfolio loans are usually made by a smaller bank or credit union. Portfolio Loans are not a conventional type of financing, like an FHA or VA Loan. The lender keeping it in their portfolio may set the standards or terms. For this reason, properties that do not meet FHA or conventional loan guidelines may qualify for a portfolio loan.
Pros of a Portfolio Loan
A portfolio lender may have different terms to meet your unique needs and may be a person-centered company, such as credit union. This type of loan may be an option for someone who is self-employed or who may have great income, but lacks a solid credit history. Some even accept borrowers that have had a bankruptcy or foreclosure, or who have higher debt-to-income ratios.
There may also be issues with your tax documentation, or judgments and liens in your history. In this case, consider a portfolio loan. You may also want to approach a portfolio lender after a short sale. Certain investors will use this type of loan for flip properties, as well. Many say they also get a high degree of personalized customer service from their smaller, community-based lender.
Cons of a Portfolio Loan
Portfolio Loans can be used on homes that do not meet conventional or FHA guidelines because of significant issues, so use caution. For example, a home may not qualify due to cracks in its foundation, roof damage, electrical risks, water or floor damage, or poor code compliance. This type of loan may also come with higher interest rates, closing costs, and fees. You may need to refinance down the line.
You typically need to make higher down payments, as well. Portfolio loans may also come with less consumer protections than other programs. You will also want to look out for pre-payment penalties and read between the lines with these loans.
Securing a Portfolio Loan
Despite all of the above issues, you may be able to qualify for the portfolio loan more quickly. As stated, you can then try to refinance to better loan terms. You may not have the documentation or down payment needed to get a conventional loan. As home prices continue to increase, a portfolio loan may prove your best option to secure a home in your current state. If you are a wealthier borrower, the smaller banks may be more invested in keeping you as a customer. They work with your situation to keep your business.
Nickel City Funding in Orchard Park, NY has helped many homeowners invest in properties through portfolio loans. Contact our offices today for more information.